introduction to investing aggie investment club. investing: what’s it all about? returns!...

Introduction to Investing

AGGIE INVESTMENT CLUB

INVESTING: WHAT’S IT ALL ABOUT?

Returns! Investing money in different vehicles like stocks, bonds, mutual funds and index funds will grow your money over time

Different time horizons will employ different strategies: Stocks: Riskier over the short term, proven higher results

long term

Bonds: Typically lower yields, but coupons (payouts) are “guaranteed” by the credit of the lender

Speculative Options: Take advantage of Leverage to make outsized bets, or use options to Hedge your positions

WHAT ARE WE LOOKING AT HERE??

Retail investors (You and I) We typically lack the tools required to execute sophisticated transactions

such as creating new securities or conducting transactions in illiquid securities Arbitrage; Retail Investor Capital Constraints

Individual investors generally lack the patience and conviction of the pros. We are more susceptible to headlines and sentiment, and will change our minds quickly Behavioral Finance: Herding Effect (Tech Bubble & Oil Markets)

Accredited investors (Wealth management fi rms, hedge funds, pension funds, trade shops, investment banks, individuals that make over $200,000 a year & >= $1MM Net Worth) Big players can literally create new markets and securities: Several funds

managed to profit on the 2007 housing collapse in the US by purchasing something called Credit Default Swaps from large US banks and insurers

Institutions manage ~70% of the market cap of all US public equities

THE MARKET: WHO IS IN THE CROWD?

WE FOCUS ON STOCKS: WHY?

HOW TO PICK MY STOCKS

There are many ways of picking a stock, but the two main methods are:

Bottom Up Approach: Fundamental Analysis Fundamental Analysis is the analysis of a company’s financial

statements and health, its management and competitive advantages, and its competitors and markets FIND VALUE Estimate stock’s intrinsic value and buy undervalued stocks

Top Down Approach Focus on industries as a whole; the individual companies don’t

matter if you can spot the macro tide (ex. 2014-2015 crude oil collapse)

Technical Analysis Technical Analysis is the analysis of past market data, primarily price

and volume, to find previous patterns that repeat themselves, and use that information to forecast how a stock’s price is likely to behave in the future ACT AT THE RIGHT TIME

SO WHICH SHOULD I USE?

While the merits of Fundamental Analysis are generally widely accepted, it often involves a major time commitment in terms of research. Idea is to wait for the market to catch up to your valuation Intrinsic value: Qualitative vs. Quantitative

Top Down approach is diffi cult for its timing aspects. One must comprehend global trends and track opaque metrics like inventories, supply and demand trends, and fi scal and monetary policies. However, when you’re right, it pays off Ex: Migrant & Refugee Crisis

Technical Analysis is not as widely accepted, but it is gaining more and more acceptance. It is diffi cult to remain completely unbiased when looking at a chart, and often the “patterns” that are used have many caveats to them EMH beliefs

FUNDAMENTAL ANALYSIS

• P/E Ratio: MV Stock Price per share/ EPS• Ex: Intrinsic value of P/E: $20. • What to do if fundamental analyst w/ P/E of $22 or $18

TECHNICAL ANALYSIS

TOP DOWN APPROACH

HOW DO I BUY A STOCK

One of the most popular ways to invest in stocks is through

an online brokerage account (TDAmeritrade, Scottrade, E-

Trade, etc.)

Stocks are listed and traded on an exchange

Exchanges have specifi c rules and securities which can be

traded, but otherwise are similar in some ways to a fancier

version of EBay, Craigslist, or even a fl ea market. They are

simply a medium for people to exchange a certain product:

stocks

Individuals use brokers to interact with exchanges and place

their orders for them. Brokers collect a fee on transactions

HOW DO I BUY A STOCK

Popular Brokers include:

E-Trade

Fidelity

Scottrade

TD Ameritrade

Charles Schwab

STOCK EXCHANGES

Think of a stock as a certificate that entitles you to a piece of the underlying physical asset (a piece of the company for example)

In a similar sense, an option provides the owner a piece of ownership of the underlying stock. It provides another layer of securitization

Ex. Call OptionI purchase a call option for a straight fee. It expires Dec 18th, 2015. It provides me the Right to purchase the underlying stock at an agreed upon price whenever I want to until Dec 18th. Why is this useful??

OPTIONS, DERIVATIVES

OTHER COOL STUFF

HOW SHOULD I INVEST??

INVEST IN YOURSELF

www.investopedia.com

www.google.com/finance

Fundamental Analysis: “The Intelligent Investor” by Ben Graham “Securities Analysis” by Ben Graham “Margin of Safety” by Seth Klarman

Technical Analysis: “Getting Started in Technical Analysis” by Jack Shwager www.stockcharts.com “Chart School” section Quantstart.com “Quantitative Finance & Algorithmic Trading”

FURTHER RESOURCES

Code in Finance Program

Partners: Morgan Stanley, Two Sigma, Galatea Associates

Will work on and receive insight into: Data Science Quantitative Strategy Software Engineering

Will also receive insight into Algorithmic Trading Financial Engineering Risk Management

OPPORTUNITIES

Texas A&M Seeking Alpha Stock Pitch Competition

First Place:• 6 m o n t h s f r e e a c c e s s t o S A P R O ( $ 1 , 2 0 0 v a l u e )• I n v i t a t i o n t o S e e k i n g A l p h a ’s U l t i m a t e C o m p e t i t i o n i n N Y C ( f l i g h t c o v e r e d b y A I C )• I n c l u s i o n i n S e e k i n g A l p h a ’s L e a d e r B o a r d o f c o m p e t i t i o n w i n n e r s• P a y m e n t f o r c o m p e t i t i o n e n t r y, r a n g i n g f r o m $ 3 5 - 5 0 0 + , d e p e n d i n g o n t h e t y p e o f i d e a• P u b l i c i t y : W e w i l l g e t y o u a n d y o u r p i t c h o u t t h e r e !

• P a s t w i n n e r s h a v e :• B e e n f e a t u r e d o n S e e k i n g A l p h a ’ s s t o c k p i t c h c o m p e t i t i o n w i n n e r b o a r d• H a d a r t i c l e s w r i t t e n a b o u t t h e m o n S e e k i n g A l p h a o r h a d t h e i r a r t i c l e s s h a r e d o n S e e k i n g A l p h a ’ s

s o c i a l m e d i a • B e e n i n t e r v i e w e d b y H e d g e y e T V, w r i t t e n u p b y l o c a l m e d i a o r i n v i t e d t o e x c l u s i v e i n v e s t m e n t

c o n f e r e n c e s• B e e n d i r e c t l y i n t r o d u c e d t o b u y - s i d e f i r m s f o r p o t e n t i a l i n t e r n s h i p s a n d j o b s

Emai l : tamuseek ingalpha@gmai l .com

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OPPORTUNITIES CONT.

Visit: www.upgradecapital.com

Recruiting

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QUESTIONS / DISCUSSION